The Cost Performance Index (CPI) is a crucial metric in project management that indicates the cost efficiency of a project. It is calculated by dividing the earned value (EV) by the actual costs (AC) incurred. The CPI provides a quantitative measure of how well the project is adhering to its budget.

• Formula: CPI = EV / AC
• Earned Value (EV): The value of work actually performed expressed in terms of the approved budget.
• Actual Cost (AC): The actual cost incurred for the work performed.
• Interpretation:
• CPI > 1: Indicates that the project is under budget. For example, a CPI of 1.2 means that for every dollar spent, $1.20 worth of work has been accomplished.
• CPI = 1: Indicates that the project is exactly on budget. For every dollar spent, one dollar’s worth of work has been accomplished.
• CPI < 1: Indicates that the project is over budget. For example, a CPI of 0.85 means that for every dollar spent, only $0.85 worth of work has been accomplished, indicating a cost overrun.
• Example:
• If a project has an Earned Value (EV) of $50,000 and an Actual Cost (AC) of $60,000:
  • CPI: CPI = $50,000 / $60,000 = 0.83
  • This means that for every dollar spent, only $0.83 worth of work has been accomplished, indicating a cost inefficiency.

In summary, the CPI is a vital indicator of cost efficiency in a project. It helps project managers understand whether the project is staying within its budget and provides insights into potential cost overruns or savings. A CPI greater than 1 indicates cost efficiency, while a CPI less than 1 indicates cost inefficiency.